12) The laissez-faire policy
prescription to eliminate unemployment was to

A. eliminate labor unions and
government policies that hold real wages too high

B. strengthen unions and government
regulations protecting unions and workers

C. increase real wages so that
people are encouraged to work

D. have government guarantee jobs
for everyone

ECO 372 ECO372 Final Exam

13) In the AS/AD model, an
expansionary monetary policy has the greatest effect on the price level when it

A. increases both nominal and real
income

B. increases real income but not
nominal income

C. increases nominal income but not
real income

D. doesn't increase real or nominal
income

14) The Federal funds rate

A. is always slightly higher than
the discount rate

B. can never be close to zero

C. may sometimes have to be targeted
at zero

D. is an intermediate target

15) What tool of monetary policy
will the Federal Reserve use to increase the federal funds rate from 1% to
1.25%?

A. Open-market operations

B. The discount rate

C. A change in reserve requirements

D. Margin requirements

ECO372 Final Exam

16) If the Federal Reserve increases the required reserves,
financial institutions will likely lend out

A. more than before, increasing the
money supply

B. less than before, decreasing the
money supply

C. more than before, decreasing the
money supply

D. less than before, increasing the
money supply

17) Suppose the money multiplier in
the U.S. is 3. Suppose further that if the Federal Reserve changes the discount
rate by 1 percentage point, banks change their reserves by 300. To increase the
money supply by 2700 the Federal Reserve should

A. reduce the discount rate by 3
percentage points

B. reduce the discount rate by 10
percentage points

C. raise the discount rate by 3
percentage points

D. raise the discount rate by 10
percentage points

18) If the Federal Reserve reduced
its reserve requirement from 6.5 percent to 5 percent. This policy would most
likely

A. increase both the money
multiplier and the money supply

B. increase the money multiplier but
decrease the money supply

C. decrease the money multiplier but
increase the money supply

D. decrease both the money
multiplier and the money supply

19) A country can have a trade
deficit as long as it can

A. purchase foreign assets

B. make loans to other countries

C. borrow from or sell assets to
foreigners

D. produce more than it consumes.

20) A weaker dollar

A. raises inflation and contracts
the economy.

B. reduces inflation and contracts
the economy

C. raises inflation and expands the
economy

D. reduces inflation and expands the
economy

21) In the short run, a trade
deficit allows more consumption, but in the long run, a trade deficit is a
problem because

A. the country eventually will
consume more and produce less

B. the country eventually will sell
all its financial assets to foreigners

C. the domestic currency will
appreciate

D. the country eventually has to
produce more than it consumes in order to pay foreigners their profits

22) Considering an economy with a
current trade deficit and considering only the direct effect on income, an
expansionary monetary policy tends to

A. decrease the exchange rate and
increase the trade deficit

B. increase the exchange rate and
increase the trade deficit

C. decrease the exchange rate and
decrease the trade deficit

D. increase the exchange rate and
decrease the trade deficit

23) The balance of trade measures
the

A. difference between the value of
imports and exports

B. share of U.S. imports coming from
various regions of the world

C. share of U.S. exports going to
various regions of the world

D. exchange rate needed to make imports equal exports

24) When a country runs a trade
deficit, it does so by:

A. borrowing from foreign countries
or selling assets to them.

B. borrowing from foreign countries
or buying assets from them.

C. lending to foreign countries or
selling assets to them.

D. lending to foreign countries or
buying assets from them.

25) Expansionary fiscal policy tends
to

A. raise U.S. income, increase U.S.
imports, and increase the trade deficit

B. raise U.S. income, increase U.S.
imports, and lower the trade deficit

C. lower U.S. income, reduce U.S.
imports, and increase the trade deficit

D. lower U.S. income, reduce U.S.
imports, and lower the trade deficit

26) In considering the net effect of
expansionary fiscal policy on the trade deficit, the

A. income effect offsets the price
effect

B. price effect offsets the income
effect

C. income and price effects work in
the same direction, so the trade deficit is decreased

D. income and price effects work in
the same direction, so the trade deficit is increased

27) If U.S. interest rates fall
relative to Japanese interest rates and Japanese inflation falls relative to
U.S. inflation, then the

A. dollar will lose value in terms
of yen

B. dollar will gain value in terms
of yen

C. dollar's value will not change in
terms of yen

D. change in the dollar's value
cannot be determined

28) Expansionary monetary policy
tends to

A. lower the U.S. interest rate and
increase the U.S. exchange rate

B. lower the U.S. interest rate and
decrease the U.S. exchange rate

C. increase the U.S. interest rate
and decrease the U.S. exchange rate

D. increase the U.S. interest rate
and increase the U.S. exchange rate

29) The U.S. has limits on Chinese
textile imports. Such limits are an example of

A. a tariff

B. a quota

C. a regulatory trade restriction

D. an embargo

30) Duties imposed by the U.S.
government on imported Chinese frozen and canned shrimp are an example of

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